May 05, 2010
Like most progressives, Robert Kuttner had great hopes following
President Obama's election in 2008. However, Kuttner also has been
around long enough to realize the risk that President Obama might not
live up to his potential in bringing about progressive change. His new
book, A Presidency in Peril, documents how the Obama administration has been falling short.
The basic story is both straightforward and depressing. President
Obama surrounded himself with advisers that were close to Wall Street
and business in general. This undoubtedly reflected his disposition; he
had always been a political moderate. However, it was also partly
determined by his political backers. Wall Street's generosity with
campaign contributions was an essential part of his rise to the top of
the Democratic field in the presidential primaries. This guaranteed
that Obama would pursue a cautious business-friendly path.
Much of the book focuses on the response to the economic crisis, in
particular the bank bailouts and the stimulus. In both cases Obama took
a centrist path that that largely protected the interests of the
wealthy. This is most clear in the case of the bank bailout. In the
closing weeks of the presidential campaign Obama took time out to push
for the TARP, a huge wad of money for the banks that came largely
without strings. After TARP, the bailouts continued, with Citigroup and
Bank of America nursed back to life thanks to the generosity of the
By contrast, the government could have taken a hard line,
temporarily taking over insolvent banks, including these giants. This
would have wiped out shareholders. It also would have meant giving
bondholders a haircut, and sending the top executives packing. While
this route was derisively termed "nationalization," including by some
top Obama officials, the point was not to have the government own the
banks. Rather the point was to do a quick clean-up operation that would
involve selling the banks, possibly in smaller pieces, back to the
private sector as soon as possible.
The Obama administration has boasted that its path prevented a
second Great Depression and has allowed for most of the bailout money
to be repaid. Of course, avoiding a second Great Depression is a rather
low bar (this spectre was an invention of the Wall Street crew - it was
never a serious possibility) and repaying the bailout money is
By telling private markets that it would support Citigroup and Bank
of America in spite of their insolvent state, the government was giving
these corporations a gift of enormous value. (Imagine that the federal
government announced that it would guarantee all the debts of a corner
lemonade stand. The lemonade stand could make billions from this
guarantee.) Their profits are really just a portion of the dividend
they received from this fairly explicit government guarantee. In other
words, we gave them the money they used to repay us.
Kuttner points out that the stimulus was woefully unambitious and
inadequate. The amount that they requested from Congress was only a bit
more than half as large as Obama's top economists felt was necessary.
Of course, they ended up with even less as Congress pared back the
request. The result is that the unemployment rate is still close to 10
percent and is not projected to return to near full employment until
Kuttner also attacks the administration's strategy on health care.
He argues that there were major failings of both timing and approach.
On timing he argued that Obama would have been better off waiting until
he established a record of accomplishment to give him the standing to
press his case. On approach, he criticizes Obama's chief of staff Rahm
Emanuel for taking an approach that involved cutting deals with the
major business interests at the onset. This limited the opportunity for
cost savings and therefore meant that the resulting health care plans
would still be expensive for middle-income families.
In the wake of the bill's passage (after the book went into print),
a bit more generosity might be appropriate here. The bill will extend
coverage to 30 million people who did not have it. And it will give the
rest of us real insurance, since we will still be able to get coverage
if a serious illness causes us to lose our jobs and our insurance. But,
Kuttner is absolutely right that the bill does not come close to fixing
the health care system. We will have to go back and discipline the drug
industry, the insurance industry, the hospital lobby and the other bad
guys in the medical-industrial complex or we will end up with a health
care bill that bankrupts the government and the country.
Kuttner's book does not give much cause for optimism. We are sitting
in the middle of the worst downturn since the Great Depression
listening to Robert Rubin lecture us about the need to cut Medicare and
Social Security. Given that Rubin earned more than $100 million from
the mortgage games that sank Citigroup, and set the economy on a glide
path to disaster as Treasury Secretary, there is something seriously
wrong with this picture.
However, we have real populist anger that will not go away as long
as the economy is being run for the benefit of Wall Street. We also
have the benefit of the Internet, which makes it impossible for the
elites to shut out populist arguments in the way they did twenty years
ago. This is not much to go up against the near infinite money
commanded by the Wall Street crew and their lackeys, but it's a start.
It also sometimes helps to be right.
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